Dear
Readers, Here we have given All about Unit Banking System, which was an
important Banking Awareness material for upcoming IBPS PO/Clerk/RRB Exams 2016.

Unit Banking - Its
Merits and Demerits

The Unit Banking system is that
system of banking under which an individual bank carries on banking business
either through a single office or through a few offices operating within a
limited area (Note: unit - single, remember like that) .

In
this system, independent, isolated units perform banking business. The size and
are of operation of unit banking are much smaller when compared to branch
banking.

Unit
banking system originated and grown in the U.S.A. Different unit banks in the
U.S.A are linked with each other financial centers in the country through
"Correspondent Banking".

Merits / Advantages
of Unit Banking:

The unit banking enjoys the
following advantages:-

1. No Problem of Mismanagement: Each bank
is small scale unit hence there is no problem of management and supervision. A
unit bank secures all the advantages of small scale operations and hence there
are less chances of mismanagement or incompetent management.

2. No delay in Taking Decisions: In unit
banking system every bank is an independent unit, hence there will be no delay
in taking decisions.

3. Personal Contact with the Customers: Unit
banking system being a small scale independent unit can maintain good personal
contacts with the customers for efficient management of the bank. It is said
that in case of unit banking system the manager can maintain good personal
contact with the customers and businessmen.

4. Low Overhead Cost: In case
of unit banking system the over head cost will be low than in case of branch
banking system.

5. No Concentration of Monopoly Power: With the
help of unit banking system it is possible to create socialistic pattern of
society which is a policy of Indian Government.

6. Promotes Regional Balance: Under
unit banking system, there is no transfer of resources from rural and backward
areas to the big industrial and commercial centers. This tends to reduce
regional imbalance.

7. Initiative in Bank Business: The bank
officers, under the unit banking system, are fully acquainted with the local
problems. SO they can take initiative in taking important decisions on the
various issues confronting the bank. This makes the banking system more
elastic.

8. Discontinuance of Inefficient Branches: Under
unit banking system, weak, inefficient and non-profitable branches are automatically
eliminated. No protection is provided to such banks.

9. No Dis-economies of Large-Scale Operations: Unit
banking is free from the dis-economies and problems of large-scale operations
which are generally experienced by the branch banks.

10. More Operational Freedom: The
managers of the unit banking system are given more discretionary powers so that
they can study the problems of local customers and provide better services to
them on merit.

Disadvantages or Demerits of Unit
Banking System:

Generally speaking the advantages
of Branch banking are the disadvantages of Unit Banking. Following are the
important disadvantages of Unit Banking System:-

1. Lack of Economies of Large Scale: Unit
banking system being operated on small scale is deprived of economies of large
scale operations.

2. More Case Reserve: When
compared to branch banking system, the banks operating under unit banking
system must have more case reserve. In unit banking system it is not easy to a
unit bank to draw on another unit bank.

3. High Cost of Operations: In case of
Branch banking system the remittance of funds from one place to another is of
great ease and at a lower cost than unit bank. It is not easy to adjust the
interoffice indebtedness in case of Unit Banking system.

4. High Risk bearing: In case
of unit banking system, the business is highly localized and any adverse
conditions in business in the area severely affect the bank. The banks under
unit banking system cannot withstand greater shocks or serious crises.

5. Lack of Mobility of Funds: In case
of unit banking system the concentration of funds is at one region. There is no
possibility of movement of funds between the regions and localities resulting
in different interest rates at different places.

6. Does not Provide Complete Banking Service: The bank
operating under unit banking system does not provide complete banking service
to its customers as done in case of Branch banking system.

7. Problem of Supervision by Central Bank: It
becomes very difficult to supervise each and every bank operating under unit
banking system.

8. Absence of Division of Labor and
Specialization:
Unit banks because of their small size and limited financial resources are not
able to introduce and get advantages of division of labor and specialization. Such
banks cannot afford to employ highly trained and specialized staff.

9. Inability to face crisis: Limited
resources of the unit banks also restrict their ability to face financial
crisis. These banks are not in a position to stand a sudden rush of withdrawals.
Inability to face economic crisis was the reason why hundreds of unit banks
failed in the U.S.A during the great depression of 1929.

10. No Banking Development in Backward Areas: Unit
banks, because of their limited resources, cannot afford to open uneconomic
branches in smaller towns and rural areas. As such, these areas remain
un-banked.

11. Costly Remittance of Funds: A unit
bank has no branches at other places. As a result, it has to depend upon
correspondent banks for transfer of funds from one place to another. This makes
the movement of funds more expensive and inconvenient for the businessmen.

12. Disparity in Interest Rates: Since
easy and cheap movement of funds does not exist under the unit banking system,
interest rates tend to vary considerably in different places.

13. Local Pressures: Since
unit banks are highly localized in their business, local pressures and
interference generally disrupt their normal functioning.

14. Undesirable Competition: Unit
banks are independently run by different managements. This results in
undesirable competition among different unit banks.

World Bank:
President : Jim Yong Kim
Headquarters: Washington, D.C., United States
World Bank Group:
World Bank Group has five international organizations:
♦ International Bank for Reconstruction and Development (IBRD)
♦ International Development Association (IDA)
♦ International Finance Corporation (IFC)
♦ Multilateral Investment Guarantee Agency (MIGA)
♦ International Centre for Settlement of Investment Disputes (ICSID)